Author: Rita

Tide Guide

UBS recently released a strategy report on Chinese technology stocks. The core judgment is very straightforward: the Chinese semiconductor industry is at the intersection of multiple expansion cycles. On one hand, there is strong demand driven by global AI infrastructure construction, and on the other hand, China's localization policy is accelerating the autonomous control of wafer fab equipment and chip design. These two forces are colliding and redefining the investment value of Chinese technology stocks.

The logic for stock selection is also clear: the most optimistic about wafer fab equipment and interconnected chips, followed by power semiconductors and autonomous driving sensors.

Global AI Cycle, Who Benefits First

The construction of global AI infrastructure is experiencing explosive growth. Data shows that global server shipments are expected to grow by 18.9% year-on-year in 2026, and by 16.6% in 2027, as demand in the AI era accelerates.

The driving force behind server demand is the explosion of AI chips. It is predicted that the shipment of NVIDIA GPU accelerators will reach approximately 6.39 million units by 2027. Data centers are scrambling for AI chips, and the heat dissipation, interconnection, and storage of AI chips all require supporting chips and solutions.

The demand for HBM is particularly exaggerated. Global HBM demand is expected to reach 41.11 billion GB by 2026, a year-on-year increase of 88.2%, far exceeding the average growth rate of the entire semiconductor industry. The manufacturing of HBM requires advanced production equipment, packaging technology, and interconnection solutions, and the surge in demand has directly boosted the prosperity of the entire upstream industry chain.

This is the logic of interconnected chips. Taking Wistron NeWeb Corporation as an example, the company provides high-speed interconnection solutions, especially optical transceivers for data centers. When AI servers need faster interconnections, Wistron NeWeb becomes a key link. EPS growth rates for 2026E and 2027E are predicted to be 19% and 41% respectively, with the corresponding price-to-earnings ratio dropping from 37 times to 26.2 times. The valuation is not cheap, but growth is accelerating.

Power semiconductors also benefit. The power consumption of AI servers is soaring, leading to a surge in demand for power management chips. The EPS growth rates for Hua Rui Micro for 2026E and 2027E are as high as 92% and 54%. This growth rate indicates that the power chip market is undergoing a strong recovery.

Localization, The Golden Age of Wafer Fab Equipment

The unique advantage of Chinese technology stocks lies not only in the AI cycle but also in localization. China has been expanding in advanced logic and memory chips for many years, which is a national-level strategic investment, and such expansion requires wafer fab equipment.

China's WFE (Wafer Fab Equipment) expenditure is expected to reach $47.5 billion in 2026, a year-on-year increase of 6.7%. The global WFE market is expected to grow from $116 billion in 2025 to $147 billion in 2026. China accounts for more than a quarter, with a faster growth rate.

North Huachuang and Zhongwei Company are direct beneficiaries. North Huachuang is a leading domestic equipment manufacturer, mainly producing key equipment such as etching machines. North Huachuang's EPS growth forecast is 23% for 2026, 71% for 2027, and 44% for 2028. This growth trajectory indicates that the wafer fab expansion cycle is still accelerating.

North Huachuang's price-to-earnings ratio has dropped from 77.1 times to 45.1 times, and then to 31.3 times, showing that the high multiples are falling, indicating that growth capacity is gradually being priced in. If growth materializes, there is still room for the stock price to rise. As domestic equipment companies secure orders, it is not only a business issue but also a strategic concern.

Back-end testing equipment is also worth noting. With an increase in chip production, the demand for testing equipment also rises. This is a less noticeable but continuously benefiting area.

Autonomous Driving and Sensors, The V-shaped Reversal of Automotive Chips

The smartphone market is in decline. Global smartphone shipments are expected to decrease by 10% year-on-year to 1.139 billion units in 2026, as the traditional consumer electronics cycle has peaked.

However, automotive chips are on the rise. Autonomous driving is a long-term growth trend that requires a large number of CMOS image sensors. Taking OmniVision Technologies as an example, although the EPS growth rate for 2026E is negative 20%, the growth rates for 2027E and 2028E are 45% and 30% respectively, indicating the company is emerging from a trough. This V-shaped reversal opportunity is very attractive to growth investors.

China's automotive chip localization is also accelerating. Many chips were previously imported, but now Chinese chip manufacturers are starting to seize the market, creating opportunities for companies like OmniVision and Horizon Robotics. Horizon Robotics has a target price of 10 Hong Kong dollars, with high implicit growth expectations.

Valuation Is Not Cheap, Risks Are Also Significant

The valuations of these companies are not cheap. North Huachuang's 2026E price-to-earnings ratio is 77 times, Hua Rui Micro 77 times, OmniVision 33.5 times, and Wistron NeWeb 37 times. However, growth rates are accelerating, and when growth accelerates, high multiples can be tolerated.

Stock selection is differentiated, and the report maintains caution on smartphone-related ICs, panels, and other areas. The risks are also clear: weak smartphone demand may drag down some chip companies, geopolitical sanctions may escalate, and pricing competition continues to exist. However, under the dual drives of the AI cycle and localization, these risks are controllable.

Triple Factors Overlaying, A Golden Cycle Is Forming

The order of stock selection preferences is very valuable for reference: wafer fab equipment > back-end testing equipment > interconnected chips > power semiconductors > autonomous driving sensors. This order reflects the value flow of the supply chain, with equipment being the most upstream and profits the most stable; chips and sensors are closer to end applications, growing faster but also more volatile.

Chinese technology stocks are at a special moment: the global AI cycle provides continuous demand, localization policies offer policy support, and industrial expansion provides growth space. The overlay of these three factors is creating a golden cycle for Chinese semiconductors.

Disclaimer

This article is a summary and interpretation of third-party brokerage research reports by Tide Research. The ratings, target prices, profit forecasts, and related judgments cited in the text represent the views of UBS analysts, which only reflect the positions of their respective institutions, do not represent the views of Tide Research, and do not constitute any investment advice.

Please note three points while reading: 1. Target prices are analysts' expectations for the next approximately 12 months, they are forecasts rather than commitments and will be repeatedly adjusted based on performance and market conditions. 2. Sell-side research reports are inherently optimistic, and some covered companies have investment banking relationships with the brokerage. 3. The value of research reports lies in the main logic and the underlying assumptions, not in any single target price. Focus on the logic, not just the price.

The market has risks, and decisions need to be independent. This article should not be a basis for buying or selling any securities.

Data source: UBS Securities Research, June 22, 2026 · UBS Model Forecast

Tide Research · June 2026